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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
GEORGIA - PACIFIC CORPORATION
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[Letterhead of Georgia-Pacific Corporation appears here]
March 31, 1999
Dear Shareholder:
You are cordially invited to our Annual Meeting of Shareholders to be held on
Tuesday, May 4, 1999, at the Radisson Riverfront Hotel, 2 Tenth Street, in
Augusta, Georgia. The meeting will begin promptly at 11:00 A.M., local time,
and I hope that it will be possible for you to attend.
The Notice of Annual Meeting on the next page lists the business to be
conducted at the meeting, which includes the election of three directors.
If you plan to attend the Annual Meeting, please let us know by marking the
appropriate box on the enclosed proxy card and returning it to ADP-Investor
Relations Services in the enclosed envelope. Also detach the admission ticket
from the proxy card and bring it with you to the Annual Meeting.
Finally, please remember that it is important that your shares be represented
and voted at our Annual Meeting regardless of the number of shares you own, and
whether or not you plan to attend. I urge you to complete, sign and return your
proxy card in the envelope provided at your earliest convenience.
Sincerely,
[Signature of A. D. Correll
appears here]
A. D. Correll
Chairman, Chief Executive
Officer and President
Georgia-Pacific Corporation
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Notice of Annual Meeting of Shareholders
May 4, 1999
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Georgia-
Pacific Corporation will be held at the Radisson Riverfront Hotel, 2 Tenth
Street, Augusta, Georgia, on Tuesday, May 4, 1999, at 11:00 A.M., local time,
for the purposes of:
(1) electing three directors;
(2) adopting or rejecting a shareholder proposal relating to the phase-out
of chlorine-based chemicals;
(3) adopting or rejecting a shareholder proposal seeking termination of the
Corporation's Shareholder Rights Plan or shareholder action thereon; and
(4) transacting such other business as may properly come before the meeting
or any adjournment thereof.
Information relating to matters (1)-(3) above is contained in the attached
Proxy Statement.
Only the holders of record at the close of business on March 10, 1999 of
shares of either Georgia-Pacific Group common stock or Timber Group common
stock are entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors,
[Signature of Kenneth F. Khoury appears here]
Kenneth F. Khoury
Vice President, Deputy General Counsel
and Secretary
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
March 31, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE POSTAGE-PAID
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR
SHARES IN PERSON.
Georgia-Pacific Corporation
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
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PROXY STATEMENT FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is provided to holders of Georgia-Pacific Corporation
- -- Georgia-Pacific Group common stock ("Georgia-Pacific Group Stock") and
Georgia-Pacific Corporation -- Timber Group common stock ("The Timber Company
Stock") in connection with the 1999 Annual Meeting of Shareholders of Georgia-
Pacific Corporation ("Georgia-Pacific" or the "Corporation"), which will be
held on May 4, 1999. Georgia-Pacific Group Stock and The Timber Company Stock
are sometimes referred to collectively in this Proxy Statement as "Common
Stock". The solicitation of proxies with respect to matters to be voted upon
by the shareholders at the Annual Meeting is made by the Board of Directors of
the Corporation (the "Board"). The Corporation commenced mailing this Proxy
Statement and the enclosed form of proxy on or about March 31, 1999.
Holders of record of Common Stock at the close of business on March 10,
1999, are entitled to one vote for each share of Georgia-Pacific Group Stock
held and 0.311 votes for each share of The Timber Company Stock held, on all
matters properly brought before the Annual Meeting. The relative voting power
of Georgia-Pacific Group Stock and The Timber Company Stock is determined,
prior to each shareholder meeting, pursuant to a formula set forth in the
Corporation's Restated Articles of Incorporation. The formula provides that
each outstanding share of Georgia-Pacific Group Stock will have one vote and
each outstanding share of The Timber Company Stock will have a variable number
of votes based on the relative market capitalizations of outstanding Georgia-
Pacific Group Stock and The Timber Company Stock during a specified period
prior to the subject meeting. As of March 10, 1999, 86,266,608 shares of
Georgia-Pacific Group Stock and 86,372,925 shares of The Timber Company Stock
were outstanding.
Action to be Taken Under the Proxies
Shares of Common Stock represented by a properly executed proxy will be
voted in accordance with the instructions thereon. If a proxy is dated, signed
and returned, but no instructions are given with respect to the matters to be
voted on, the persons acting under the proxy will vote the shares represented
thereby for the election of the three nominees for director in Class III named
herein, and against the shareholder proposals set forth and described under
the captions "Proposal II -- Shareholder Proposal (Phase-Out of Chlorine-Based
Chemicals)" and "Proposal III -- Shareholder Proposal (Termination of
Shareholder Rights Plan or Shareholder Action Thereon)." At this time, the
Board is not aware of any other business to be brought before the meeting. If
any nominee for election as a director should become unable to accept
nomination, the person or persons acting under the proxies will vote for any
substitute nominee who may be designated by the Governance Committee of the
Board or by the Board itself.
Voting Procedures
The presence in person or by proxy of holders of a majority of the votes
entitled to be cast by the outstanding shares of Common Stock, voting together
as a single class, constitutes a quorum for the transaction of business at the
Annual Meeting. Once a share is represented for any purpose at the Annual
Meeting (other than solely to object to holding the meeting or to transacting
business at the
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meeting), it is deemed present for quorum purposes for the remainder of the
meeting. Abstentions and votes withheld from any nominee for director will be
considered "votes entitled to be cast" and therefore will be counted as
present for purposes of determining the presence or absence of a quorum.
Broker non-votes will not be considered to be "votes entitled to be cast" and
therefore will not be counted as present for quorum purposes. Broker non-votes
are votes that brokers holding shares of record for their customers are not
permitted to cast under applicable stock exchange rules because the brokers
have not received specific instructions from their customers as to certain
"non-discretionary" proposals and as to which the brokers have advised the
Corporation that they lack voting authority.
Directors are elected by a plurality of the votes cast. Therefore, if a
quorum is present, votes withheld from any nominee will have no effect on the
outcome of voting for directors (Proposal I). Proposal II will be approved if
the votes cast in favor of the proposal exceed the votes cast against the
proposal. Therefore, abstentions and broker non-votes will have no effect on
the adoption or rejection of Proposal II. Proposal III requires the
affirmative vote of the holders of a majority of the voting power of all
outstanding Common Stock, voting together as a single class. Accordingly,
abstentions and broker non-votes will have the same effect as votes against
Proposal III.
Execution and Revocation of Proxy
If stock is registered in the name of more than one person, each such person
should sign the proxy. If the proxy is signed by an attorney, executor,
administrator, trustee, guardian or by any other person in a representative
capacity, the full title of the person signing the proxy should be given and
(if not previously furnished with a prior proxy) a certificate should be
furnished showing evidence of appointment. The giving of a proxy does not
affect your right to vote in person should you be able to attend the meeting.
Your proxy may be revoked at any time before it is exercised, in which event
written notice of revocation should be filed with the Secretary of the
Corporation.
Confidential Voting Policy
The Board has adopted a policy to ensure the confidentiality of the
individual votes of the Corporation's shareholders, with certain limited
exceptions. The policy provides that all shareholder proxies, ballots and
voting materials that identify the votes of specific shareholders will be kept
confidential and will not be disclosed to the Corporation, its affiliates,
directors, officers and employees or to any third parties except where (i)
disclosure is required by applicable law, (ii) a shareholder expressly
requests disclosure with respect to his or her vote, or (iii) the Corporation
concludes in good faith that a bona fide dispute exists as to the authenticity
of one or more proxies, ballots or votes, or as to the accuracy of any
tabulation of such proxies, ballots or votes. In addition, aggregate vote
totals may be disclosed to the Corporation from time to time and publicly
announced at the meeting of shareholders to which such vote totals relate.
Signed proxy cards will be submitted to, and all proxy votes will be tabulated
by, an independent third party. The Corporation is not required to comply with
this confidential voting policy in the event of a proxy contest unless the
other person soliciting proxies in the contest agrees to comply with the
policy.
This confidential voting policy does not prohibit shareholders from
disclosing the nature of their votes to the Corporation or to the Board if
they wish to do so. The policy is intended to enhance shareholder rights and
to encourage free and voluntary communication between the Corporation and its
shareholders.
PROPOSAL I -- ELECTION OF DIRECTORS
Corporate Governance Matters
The Board of Directors has adopted a set of Policies and Procedures
governing the composition and operation of the Board and its Committees. These
Policies and Procedures address, among other things, qualifications and tenure
of directors, responsibilities and operations of committees, review of capital
expenditure plans, capital appropriations and allocations, succession planning
and performance reviews of the Chief Executive Officer and the Board itself.
Some of the most significant of these policies are described below.
2
Pursuant to the Policies and Procedures, when the Chief Executive Officer
resigns or retires, he must simultaneously offer to resign from the Board. All
other directors may continue to serve until the annual meeting nearest to the
date they attain the age of 72 years, even if their term of office would
otherwise extend beyond such date, except that any director should offer to
resign in the event of prolonged ill health or if the principal employment or
similar responsibility he or she had when elected to the Board changes.
The Policies and Procedures also require the Corporation to maintain a
majority of "independent" directors, and that all directors serving on the
Audit and Compensation Committees be independent. An "independent" director is
one who is not an officer or former officer of the Corporation and is not
related to any such person, is not an officer of a significant customer or
supplier to the Corporation, does not have a significant personal services
contract with the Corporation, is not a significant adviser (other than as a
director) or consultant to the Corporation, and is not affiliated with a tax-
exempt entity that receives significant contributions from the Corporation.
Pursuant to the Policies and Procedures, the outside directors, acting as a
group, annually evaluate the performance of the Chief Executive Officer based
on criteria such as the overall performance of the Corporation, the
accomplishment of long-term strategic objectives, the development of
management, and performance against specific targets. The Chief Executive
Officer reports regularly to the Board on the overall process of management
development and succession planning for the Corporation. The Governance
Committee of the Board, which is composed entirely of independent directors,
makes an annual assessment of the Board's overall performance and reports its
findings to the full Board. Each Committee of the Board also assesses annually
its performance in carrying out its duties.
As part of its review and approval of the letter stock recapitalization
approved by the shareholders of the Corporation in 1997 (the "Letter Stock
Recapitalization"), the Board adopted certain governance policies and
directives addressing issues specific to the creation of two classes of common
stock separately reflecting the performance of the Corporation's two operating
groups, the Georgia-Pacific Group and The Timber Company, and recognizing its
equal fiduciary obligations to the holders of Georgia-Pacific Group Stock and
The Timber Company Stock. These policies and directives include revised
procedures for Board review of matters affecting The Timber Company's business
and operations, intracorporate transactions and allocations involving The
Timber Company, and provide that directors should hold a substantially equal
number of shares of each class of Common Stock.
Committees of the Board of Directors
The Board of Directors currently appoints an Audit Committee, Compensation
Committee, Executive Committee, Finance Committee and Governance Committee.
Audit Committee. Mr. James S. Balloun, Mr. Robert Carswell, Mr. Harvey C.
Fruehauf, Jr., Mr. Francis Jungers and Dr. Louis W. Sullivan, all of whom are
independent directors as defined above, are members of the Audit Committee,
and Mr. Jungers is Chairman of the Committee. The primary responsibilities of
the Audit Committee are to provide assurance to the Board that the
Corporation's financial statements fairly present its financial condition,
cash flows and results of operations, that the Corporation is in material
compliance with pertinent laws and regulations, is conducting its affairs
ethically and is maintaining effective controls to prevent and detect employee
conflicts of interest, misconduct and fraud; to review the planning and
results of the audit of the Corporation's financial statements with the
Corporation's independent public accountants; to review the adequacy of the
system of internal controls; and to review the planned scope of and fees
charged by the independent public accountants for examinations of the
Corporation's financial statements. In addition, the Audit Committee reviews
the results of certain examinations performed by the Internal Audit Department
of the Corporation. This Committee held four meetings in 1998.
3
Compensation Committee. Mr. Donald V. Fites, Mr. Richard V. Giordano, Mr.
David R. Goode, Mr. M. Douglas Ivester and Mr. James B. Williams, all of whom
are independent directors as defined above, are members of the Compensation
Committee, and Mr. Giordano is Chairman of the Committee. This Committee is
responsible for administering the compensation programs of the Corporation.
The Committee approves the design of, is administrator of, and makes grants
and awards and sets performance targets under the compensation plans of the
Corporation in which officers are eligible to participate, and certain other
plans. The members of the Committee are not eligible to participate in any of
these plans. The Committee evaluates the performance of the Chairman and Chief
Executive Officer and reviews all aspects of his compensation, and determines
all officers' salaries. The Committee also studies and makes determinations
regarding other forms of compensation for officers and employees of the
Corporation, including incentive compensation, retirement plans and other
similar plans. From time to time the Committee meets privately with a
compensation consultant to discuss executive compensation matters. This
Committee held eight meetings in 1998.
Executive Committee. Mr. Alston D. Correll, Mr. T. Marshall Hahn, Jr. and
Messrs. Fites, Fruehauf, Giordano and Jungers are members of the Executive
Committee, and Mr. Correll is Chairman of the Committee. The Executive
Committee is authorized to exercise the powers of the full Board between
meetings, except that its authority does not extend to certain fundamental
matters of corporate governance or to certain fundamental corporate
transactions. The Committee does not hold regularly scheduled meetings but
meets when necessary. This Committee did not meet in 1998.
Finance Committee. Ms. Jane Evans and Messrs. Balloun, Carswell, Goode,
Ivester and Williams are members of the Finance Committee, and Mr. Williams is
Chairman of the Committee. This Committee is primarily responsible for
reviewing and recommending all forms of major financing, including the
issuance of securities, all financial planning for the Corporation, including
payment of dividends, and all policies to be implemented by management in the
areas of corporate borrowing, major real property and equipment leases,
acquisitions and dispositions of business operations and capital assets. This
Committee held five meetings in 1998.
Governance Committee. Ms. Evans, Dr. Sullivan and Messrs. Fites and Fruehauf
are members of the Governance Committee, and Mr. Fruehauf is Chairman of the
Committee. This Committee reviews and makes recommendations to the Board as to
the composition, organization, work and compensation of the Board and its
Committees, and conducts an annual evaluation of the Board as a whole. In
making its assessment of the performance of the Board from May 1997 through
April 1998, the Committee concluded that the Board functions well as a whole
and has the background, experience and diversity to meet its fiduciary
obligations to shareholders, to adequately oversee the Corporation's business
and operations, and to provide appropriate advice to management. The Committee
also determined that the Board had complied with its Policies and Procedures.
This Committee also reviews all persons recommended to serve on the Board and
makes recommendations to the Board regarding persons to be proposed by the
Board as nominees for election as directors. The Committee will consider
persons recommended for membership on the Board when suggested in good faith
by a shareholder (with the consent of the nominee). The procedure shareholders
must follow in order to nominate an individual for election to the Board is
set forth under "Shareholder Nominations for Election of Directors" on page
10. This Committee held five meetings in 1998.
Meetings of the Board of Directors
The Board of Directors is scheduled to hold six regular meetings in 1999 and
will hold special meetings when the business of the Corporation requires.
During 1998 the Board held six regular meetings, and members of the Board
attended, on average, 94% of all Board meetings and meetings of Committees of
which they were members. All members of the Board attended at least 75% of all
Board and Committee meetings in 1998, except Dr. Sullivan, who was absent from
the Board and Committee meetings held on May 4-5 and September 22-23.
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Directors and Nominees
The Bylaws of the Corporation provide for the division of the Board into
three classes, with the directors in each class serving for a term of three
years. At the Annual Meeting of Shareholders on May 4, 1999, three nominees
for director in Class III are to be elected to serve until the Annual Meeting
of Shareholders in 2002, or until their successors are elected and qualified.
The terms of Mr. Hahn and Mr. Jungers as directors of the Corporation will
expire at the Annual Meeting, and in accordance with the Board's current
retirement policy, they will retire as directors effective at the Annual
Meeting. All nominees for the office of director currently serve on the Board
pursuant to shareholder election except Mr. Balloun, who was elected by the
Board effective July 30, 1998 to fill a vacancy created by action of the Board
in amending the Bylaws to increase the number of directors of the Corporation.
The Governance Committee will consider whether and at what time to fill the
vacancies resulting from Mr. Hahn's and Mr. Jungers' retirement, or whether to
recommend reduction of the number of directors of the Corporation to eliminate
one or both vacancies.
The Board of Directors recommends that the shareholders vote FOR the
election of the three nominees named below.
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Nominees for Election in Class III on May 4, 1999
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JAMES S. BALLOUN, 60, Chairman, Chief Executive Officer and
President of National Service Industries, Inc. (lighting
equipment, chemicals, textile rental and envelopes), Atlanta,
Georgia since 1996, has been a director of Georgia-Pacific since
July 30, 1998. Mr. Balloun served as a Director of McKinsey &
Company, Inc. (management consulting) from 1976 until assuming
his present position.
Mr. Balloun is also a director of National Service Industries,
Inc., Radiant Systems, Inc. and Wachovia Corporation.
[Photo appears here]
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ROBERT CARSWELL, 70, Of Counsel to the law firm of Shearman &
Sterling, New York, New York since January 1994, has been a
director of Georgia-Pacific since 1987. Mr. Carswell was a
partner of Shearman & Sterling from 1981 through 1993. He also
served as Chairman of the Private Export Funding Corporation,
New York, New York (finance company affiliated with the Export-
Import Bank of the United States ) from 1993 until December
1996.
[Photo appears here]
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ALSTON D. CORRELL, 57, Chief Executive Officer of Georgia-
Pacific since May 1993, Chairman of the Corporation since
December 1993, and President since May 1996, has been a director
of the Corporation since 1992.
Mr. Correll is also a director of Sears, Roebuck and Co., The
Southern Company and SunTrust Banks, Inc.
[Photo appears here]
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Continuing Directors
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JANE EVANS, 54, Chief Executive Officer of SmartTV (inter-
active television/smart cards), Burbank, California since August
1995, has been a director of Georgia-Pacific since 1994, and her
current term as director will expire in 2000. From April 1991
until March 1995, she was Vice President and General Manager of
the Home and Personal Services Market Unit of US West
Communications, Inc. (telecommunications company), Denver,
Colorado.
Ms. Evans is also a director of Banc-One--Arizona, Kaufman &
Broad Home Corp. and Philip Morris Companies, Inc.
[Photo appears here]
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DONALD V. FITES, 65, retired effective February 1, 1999 as
Chairman and Chief Executive Officer of Caterpillar Inc.
(manufacture of construction, mining and agricultural machinery
and engines), Peoria, Illinois, a position he had held since
1990. Mr. Fites has been a director of the Corporation since
1992, and his current term as director will expire in 2001.
Mr. Fites is also a director of Caterpillar Inc., AT&T
Corporation, Mobil Corporation and Wolverine World Wide, Inc.
[Photo appears here]
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HARVEY C. FRUEHAUF, JR., 69, President of HCF Enterprises,
Inc. (private investment management company), St. Clair Shores,
Michigan since 1969, has been a director of Georgia-Pacific
since 1968, and his current term as director will expire in
2001.
Mr. Fruehauf is also a director of ISPNews-HighWind, Inc. and
Sentinel Trust Company, LBA.
[Photo appears here]
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RICHARD V. GIORDANO, 64, Chairman of BG plc (purchase,
distribution and sale of gas and gas supported services),
London, England since January 1994, has been a director of
Georgia-Pacific since 1984, and his current term as director
will expire in 2000. Mr. Giordano served as Chairman and Chief
Executive Officer of The BOC Group plc (manufacture of
industrial gases and other products) from 1985 to 1991 and as
Chairman from January 1994 until January 1996.
Mr. Giordano is also a director of Rio Tinto plc.
[Photo appears here]
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DAVID R. GOODE, 58, Chairman, President and Chief Executive
Officer of Norfolk Southern Corporation (transportation holding
company), Norfolk, Virginia since September 1992, has been a
director of Georgia-Pacific since 1992, and his current term as
director will expire in 2001.
Mr. Goode is also a director of Norfolk Southern Corporation,
Aeroquip-Vickers, Inc., Caterpillar Inc., Delta Air Lines, Inc.
and Texas Instruments Incorporated.
[Photo appears here]
6
M. DOUGLAS IVESTER, 51, Chairman of the Board and Chief
Executive Officer of The Coca-Cola Company (manufacture,
marketing and distribution of soft drink syrups and
concentrates, and marketing and distribution of juice and juice-
drink products), Atlanta, Georgia since October 23, 1997, has
been a director of Georgia-Pacific since 1993, and his current
term as director will expire in 2000. Mr. Ivester served as
President and Chief Operating Officer of The Coca-Cola Company
from July 1994 to October 1997 and as President of its North
America Business Sector from September 1991 until elected to the
positions of Executive Vice President and Principal Operating
Officer/North America effective April 1993.
Mr. Ivester is also a director of The Coca-Cola Company and
SunTrust Banks, Inc.
[Photo appears here]
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LOUIS W. SULLIVAN, M.D., 65, President of Morehouse School of
Medicine, Atlanta, Georgia since January 1993, has been a
director of Georgia-Pacific since 1993, and his current term as
director will expire in 2000. Dr. Sullivan served as Secretary
of the United States Department of Health and Human Services
from March 1989 until January 1993.
Dr. Sullivan is also a director of Bristol-Myers Squibb
Company, CIGNA Corporation, Equifax Inc., General Motors
Corporation, Household International, Inc., and Minnesota Mining
& Manufacturing Company.
[Photo appears here]
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JAMES B. WILLIAMS, 66, Chairman of the Executive Committee of
SunTrust Banks, Inc. (bank holding company), Atlanta, Georgia
since March 21, 1998, has been a director of Georgia-Pacific
since 1989, and his current term as director will expire in
2001. Mr. Williams held the positions of Chairman and Chief
Executive Officer of SunTrust Banks, Inc. from April 1991 and
April 1990, respectively, until March 1998.
Mr. Williams is also a director of SunTrust Banks, Inc., The
Coca-Cola Company, Genuine Parts Company, Rollins, Inc., RPC,
Inc., and Sonat Inc.
[Photo appears here]
7
Ownership of Common Stock of the Corporation
Set forth below is the number of shares beneficially owned, as of December
31, 1998, by persons known to the Corporation, based on data furnished by such
persons, to be beneficial owners of more than five percent of the outstanding
shares of either class of Common Stock. Also set forth below is the number of
shares of each class of Common Stock beneficially owned on March 1, 1999 by
all directors and nominees for director, by each of the executive officers
named in the Summary Compensation Table on page 17, and by all directors and
executive officers as a group, based on data furnished by such directors,
nominees and executive officers. Unless otherwise specifically stated, all
such persons have sole voting and investment power with respect to shares
listed.
Number of Shares Percent of Class
Beneficially Owned Beneficially Owned
-------------------------------- -----------------------------
Georgia-Pacific The Timber Georgia-Pacific The Timber
Name Group Stock Company Stock Group Stock Company Stock
- ---- --------------- ------------- --------------- -------------
Greater Than 5%
Beneficial Owners:
Southeastern Asset
Management, Inc....... 11,893,600(1) 13.6%
Mr. O. Mason Hawkins
6410 Poplar Ave.
Memphis, TN 38119
Capital Research and
Management Company.... 7,920,000(2) 9.1%
333 South Hope Street
Los Angeles, CA 90071
The Prudential
Insurance Company
of America............ 4,893,502(3) 5.56%
751 Broad Street
Newark, NJ 07102
Directors and Executive
Officers:
James S. Balloun....... 1,405(4)(5) 405(4)(5) * *
Robert Carswell........ 5,007(4)(5) 5,007(4)(5) * *
Alston D. Correll...... 341,392(6)(7) 379,850(6)(7) * *
Jane Evans............. 1,586(5) 1,586(5) * *
Donald V. Fites........ 4,068(4)(5) 4,152(4)(5) * *
Harvey C. Fruehauf,
Jr.................... 468,534(5)(8) 473,604(5)(8) * *
Richard V. Giordano.... 4,283(5) 4,283(5) * *
David R. Goode......... 2,286(4)(5) 2,286(4)(5) * *
T. Marshall Hahn, Jr... 11,583(5) 11,583(5) * *
M. Douglas Ivester..... 2,532(4)(5) 2,532(4)(5) * *
Francis Jungers........ 8,839(5) 8,839(5) * *
Louis W. Sullivan...... 2,170(5) 2,193(5) * *
James B. Williams...... 13,015(4)(5) 13,015(4)(5) * *
John F. McGovern....... 94,006(6) 106,024(6) * *
Lee M. Thomas.......... 47,782(6) 36,800(6) * *
Donald L. Glass........ 45,846(6) 212,725(6) * *
Ronald L. Paul......... 10,400(6) 9,300(6) * *
All Directors and
Executive Officers
as a Group............ 1,205,980(9) 1,394,687(9) 1.4% 1.6%
- --------
* Less than 1 percent.
(1) Information regarding the ownership of The Timber Company Stock by
Southeastern Asset Management, Inc. ("Southeastern") and Mr. O. Mason
Hawkins, Chairman of the Board and CEO of Southeastern, was obtained from
a Schedule 13G, dated January 20, 1999, filed by Southeastern and Mr.
Hawkins with the Securities and Exchange Commission. Southeastern, in its
capacity as investment advisor, and Mr. Hawkins, in the event he could be
deemed to be a controlling person of Southeastern, may be deemed to be the
beneficial owner of these shares which are owned legally by Southeastern's
clients. No such client is known to have an interest with
8
respect to more than 5% of the outstanding shares of The Timber Company
Stock. Southeastern has sole dispositive and voting power as to all shares
except 39,000 shares as to which it has no dispositive power and 2,288,700
shares as to which it has no voting power.
(2) Information regarding the ownership of The Timber Company Stock by Capital
Research and Management Company ("Capital Research") was obtained from a
Schedule 13G, dated February 8, 1999, filed by Capital Research with the
Securities and Exchange Commission. Capital Research, which is deemed to
be the beneficial owner of these shares as a result of acting as
investment advisor to various investment companies, has sole dispositive
power and no voting power as to all 7,920,000 shares.
(3) Information regarding the ownership of Georgia-Pacific Group Stock by The
Prudential Insurance Company of America ("Prudential") was obtained from a
Schedule 13G, dated February 1, 1999, filed by Prudential with the
Securities and Exchange Commission. Prudential holds these shares for its
own benefit or for the benefit of its clients by its separate accounts,
externally managed accounts, registered investment companies, subsidiaries
and/or other affiliates. Prudential shares dispositive power as to
4,496,252 shares, and shares voting power as to 4,469,452 shares.
(4) In addition to the shares beneficially owned, the following directors have
elected to defer payment of a portion of the directors' fees paid or
payable to them, with such amounts to earn a return to be determined as if
they had been invested in Common Stock of the Corporation. As of March 1,
1999, the deferred compensation account of the directors listed below
included amounts equivalent to the number and class of shares of Common
Stock listed opposite their names:
Georgia-Pacific Group The Timber Company
Stock Stock
--------------------- ------------------
Mr. Balloun ........................ 366 371
Mr. Carswell........................ 9,151 9,465
Mr. Fites........................... 638 651
Mr. Goode........................... 4,374 4,516
Mr. Ivester......................... 3,705 3,824
Mr. Williams........................ 5,750 5,938
(5) Includes, as of March 1, 1999, the following number of restricted shares
received under the Outside Directors Stock Plan:
Georgia-Pacific Group The Timber Company
Stock Stock
--------------------- ------------------
Mr. Balloun......................... 405 405
Mr. Carswell........................ 4,007 4,007
Ms. Evans........................... 1,586 1,586
Mr. Fites........................... 2,153 2,153
Mr. Fruehauf........................ 4,181 4,181
Mr. Giordano........................ 3,283 3,283
Mr. Goode........................... 1,786 1,786
Mr. Hahn............................ 1,267 1,267
Mr. Ivester......................... 1,532 1,532
Mr. Jungers......................... 4,839 4,839
Dr. Sullivan........................ 1,990 1,990
Mr. Williams........................ 3,015 3,015
(6) Includes, as of March 1, 1999, the following number of shares as to which
the following executive officers have the right to acquire beneficial
ownership through the exercise of stock options:
Georgia-Pacific Group The Timber Company
Stock Stock
--------------------- ------------------
Mr. Correll......................... 245,392 282,850
Mr. McGovern........................ 65,120 77,075
Mr. Thomas.......................... 42,782 31,800
Mr. Glass........................... 35,400 97,750
Mr. Paul............................ 9,300 9,300
9
(7) Includes 6,000 restricted shares of Georgia-Pacific Group Stock and 6,000
restricted shares of The Timber Company Stock awarded under the 1990 Long-
Term Incentive Plan.
(8) Mr. Fruehauf has: (i) sole voting and investment power as to 110,919
shares of Georgia-Pacific Group Stock and 110,919 shares of The Timber
Company Stock; (ii) sole voting power and shared investment power as to
154,917 shares of Georgia-Pacific Group Stock and 154,917 shares of The
Timber Company Stock; (iii) shared voting and investment power as to
159,637 shares of Georgia-Pacific Group Stock and 164,707 shares of The
Timber Company Stock; and (iv) shared investment power but no voting power
as to 36,223 shares of Georgia-Pacific Group Stock and 36,223 shares of
The Timber Company Stock.
(9) Includes, as of March 1, 1999, an aggregate of 7,000 restricted shares of
Georgia-Pacific Group Stock and 7,000 restricted shares of The Timber
Company Stock awarded to executive officers under the 1990 Long-Term
Incentive Plan, and an aggregate of 538,260 shares of Georgia-Pacific
Group Stock and 622,850 shares of The Timber Company Stock which executive
officers of the Corporation have the right to acquire ownership through
the exercise of stock options.
Compensation of Non-Employee Directors
The total annual compensation payable to each non-employee director for 1998
was $40,000 in cash and a grant of restricted stock under the Outside
Directors Stock Plan (the "Directors Stock Plan"), consisting of substantially
equal numbers of shares of each class of Common Stock, with an aggregate value
of $40,000 (subject to immaterial rounding differences) on the date of grant
(May 15, 1998). The Board has been advised by its compensation consultant that
the total of cash and stock-based compensation of $80,000 per year is
approximately equal to the median compensation of directors of similarly-sized
corporations. Each Committee chairman receives an additional $5,000 annual
fee. The Corporation also provides $50,000 of group term life insurance for
each non-employee director. The Board believes that this compensation package
continues to allow the Corporation to attract and retain qualified directors,
while evidencing the Board's commitment to insure that a significant portion
of directors compensation is stock-based.
All shares granted under the Directors Stock Plan are "restricted" and may
not be sold or otherwise transferred except upon the director's death,
expiration of six months after the director becomes disabled or retires
pursuant to the Board's retirement policy, or in the event continued service
is prohibited by law or by the policies of a governmental, charitable or
educational institution with which the director accepts a position. If the
director's service on the Board terminates for any other reason, all shares
issued to him or her under the Directors Stock Plan will be forfeited.
Directors have the option to defer all or a part of the cash compensation
payable to them provided at least $10,000 is deferred in each calendar year.
Directors electing to defer all or a part of their fees have the further
option of having (a) the return on the deferred fees determined as if such
funds had been invested (i) in an equal number of shares of Georgia-Pacific
Group Stock and The Timber Company Stock or (ii) at a floating interest rate
equal to 3/4% over the six-month Treasury Bill rate, and (b) the deferred fees
(adjusted for investment gains or losses) paid upon retirement in a single
payment or in annual cash payments.
Transactions with Directors
Mr. Carswell is Of Counsel to the law firm of Shearman & Sterling, New York,
New York. Shearman & Sterling performed legal services for the Corporation in
1998, and it is anticipated that such firm will perform legal services for the
Corporation in 1999.
Shareholder Nominations for Election of Directors
The Bylaws of the Corporation provide that any shareholder of record
entitled to vote generally in the election of directors may nominate persons
for election as directors at a meeting if written notice of such shareholder's
intent to make such nomination has been given, either by personal delivery or
10
by first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than 60 days nor more than 75 days prior to the meeting.
In the event that less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to shareholders, notice by the
shareholder of his or her intent to nominate must be so received by the
Secretary of the Corporation by the close of business on the 10th day
following the day on which such notice of the date of meeting was mailed or
such public disclosure was made, whichever first occurs.
Each such shareholder's notice to the Secretary of an intent to nominate
must set forth: (i) the name and address of record of the shareholder who
intends to make the nomination; (ii) a representation that the shareholder is
a holder of record of shares of the Corporation's capital stock entitled to
vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the persons specified in the notice; (iii) the class and
number of shares of Common Stock held of record, owned beneficially, and
represented by proxy, by the shareholder, and each proposed nominee, as of the
date of the notice; (iv) the name, age, business and residence addresses, and
principal occupation or employment of each proposed nominee; (v) a description
of all arrangements or understandings between the shareholder and each
proposed nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the
shareholder; (vi) such other information regarding each proposed nominee as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission; and (vii) the written
consent of each proposed nominee to serve as a director of the Corporation if
so elected. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as a director of
the Corporation.
COMPENSATION OF EXECUTIVE OFFICERS
Report of Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors is responsible for
administering executive compensation. The duties of this Committee are set
forth on page 4 under the heading "Compensation Committee". This report
describes the compensation policies established by the Committee for the
executive officers of the Corporation.
The Corporation's executive compensation program consists of three elements:
base salaries, annual cash incentive compensation opportunities, and long-term
equity incentive compensation opportunities. The annual and long-term
incentive plans have been designed to tie executive compensation to the
enhancement of shareholder returns and achievement of the Corporation's
business objectives.
Targeted levels of each component of executive compensation are set at
levels that the Committee believes, based on a regular review of survey data
provided by two nationally recognized compensation consulting firms,
approximate the 50th percentile of prevailing compensation practice. Because
the Committee believes that the competitive environment for qualified
executives extends beyond the paper and forest products industry, this survey
data covers a cross-section of U.S. industrial companies, representing a range
of industries, which are similar to the Corporation in terms of size and
complexity of operations (the "Comparison Group"). The Comparison Group
includes 9 of the 10 companies in the Standard & Poor's Paper and Forest
Products Index included in the Comparison of Cumulative Five-Year Shareholder
Return beginning on page 15.
The Internal Revenue Code generally provides that corporate deductions may
be disallowed for annual compensation in excess of $1,000,000 paid to certain
executive officers. The Compensation Committee's policy is to design and
administer the Corporation's executive compensation program to minimize any
loss of tax deductibility, while at the same time ensuring that the
Corporation's compensation program remains competitive. The Corporation's
annual and long-term incentive plans are intended to qualify payments under
those plans as "performance-based compensation", which is not subject to the
$1,000,000 cap on deductibility.
11
Base Salary. Executive officers' base salaries are reviewed and approved
annually by the Compensation Committee. Initial salaries and subsequent
increases in such salaries are based on individual qualifications, experience
and performance, the nature of job responsibilities and competitive
marketplace data. Salaries of executive officers are established by reference
to the median base salary of their counterparts in the Comparison Group. In
determining 1998 base salaries, the Compensation Committee focused on base
salaries paid to bonus-eligible executives in the Comparison Group. For 1998,
executive officer salaries, including those of the officers included in the
Summary Compensation Table on page 17 (the "Named Executive Officers"), on
average approximated the median (50th) percentile of prevailing comparative
salary practices among the Comparison Group, based on surveys available as of
the beginning of 1998. Mr. Correll's annual base salary in 1998 was
$1,050,000, which is approximately 102% of the median of salaries for the
comparable position paid by the Comparison Group.
Economic Value Incentive Plan ("EVIP"). The EVIP, approved by the
shareholders in 1995, is designed to align annual cash incentive compensation
opportunities with the Corporation's financial strategy. Georgia-Pacific Group
has established Economic Value Added ("EVA(R)") as the principal financial
metric to evaluate its progress. EVA, which measures the Group's ability to
generate net after-tax operating profits in excess of its cost of capital
(both equity and debt), determines the "short-term" (or quantitative) portion
of the cash bonus incentives under the EVIP. The remainder of participants'
bonuses under the EVIP (the "long-term" or qualitative portion) is based on
assessments of each business unit's efforts during a given year to achieve
identified EVA "drivers" and to increase the EVA of the Corporation in
succeeding years.
Bonuses could be earned for 1998 under the annual portion of the EVIP at
three different levels: threshold, target and maximum. For any amount to be
earned the threshold EVA level had to be achieved. The Committee set EVA
targets for Georgia-Pacific Group as a whole, and Mr. Correll, as Chief
Executive Officer, established EVA goals for each business segment and
division within the Group consistent with corporate goals. Participants could
earn a predetermined percentage of their base salary grade midpoint upon
achievement of corporate, segment and/or division EVA targets applicable to
them, with higher bonus percentages being assigned to participants in
positions of greater responsibility within the Corporation.
The EVIP was structured based on the median practices of Comparison Group
companies included in one of the two surveys used in the determination of base
salaries. The Committee set the corporate target EVA level and the
corresponding bonus percentages such that the total bonus opportunity under
the EVIP would lie at the median (50th percentile) of competitive practice if
the target EVA goal was achieved. The threshold EVA level, on the one hand,
and the maximum EVA level, on the other (and the corresponding bonus
percentages), were set in order to afford participants below- and above-
average bonus opportunities, respectively. The total (short-term and long-
term) bonus payable to each participant (other than Mr. Correll) was limited
to 100% of base salary.
Georgia-Pacific Group as a whole did not meet its threshold EVA level in
1998. However, certain business segments and divisions within the Group did
achieve EVA levels at or exceeding their thresholds, and the executive
officers and other EVIP participants in those segments and divisions received
a bonus payment under the short-term portion of the EVIP. The precise amount
paid to participants was based on percentages set by the Committee of the
salary grade midpoint of each participant and the degree to which each
participant's assigned business segment or division achieved the EVA goals set
for it. Executive officers and EVIP participants outside these segments and
divisions did not receive any bonus payment under the short-term portion of
the EVIP.
Bonuses were awarded by Mr. Correll to all other participants in the EVIP
under its long-term portion based on his assessment of actions taken during
1998 by each operating division and corporate staff department to achieve
their EVA drivers and to increase EVA in future years.
The EVIP awards for certain managers of the Corporation who had
responsibilities for both Georgia-Pacific Group and The Timber Company (which
group includes Mr. Correll and Mr. McGovern) were based upon the achievement
of Georgia-Pacific Group's EVA goals and the achievement of The
12
Timber Company's performance targets under The Timber Company 1998 Annual
Bonus Plan discussed below.
Because Georgia-Pacific Group did not achieve threshold EVA in 1998, under
the terms of the EVIP Mr. Correll did not receive a bonus based on the Group's
performance. As discussed below, The Timber Company achieved its maximum
performance standard for its earnings per share and cash flow targets for
1998. As a result of The Timber Company's outstanding performance, Mr. Correll
received a bonus of $399,600 under the EVIP. Based on competitive data used by
the Corporation in developing Mr. Correll's annual cash incentive compensation
opportunities under the EVIP, the bonus paid to him for 1998 was approximately
42% of the median bonus paid to chief executive officers at Comparison Group
companies.
The Timber Company 1998 Annual Bonus Plan. The Committee approved The Timber
Company 1998 Annual Bonus Plan ("TTC Bonus Plan") to provide annual cash
incentive compensation opportunities to selected exempt employees of The
Timber Company. The amount of bonuses awarded under the TTC Bonus Plan were
determined by both objective and subjective criteria.
The objective assessment determined 60% to 70% of final awards depending
upon performance against pre-established criteria which varied based upon the
participant's position and organization level. These criteria consisted of one
or more of the following: the earnings per share of The Timber Company, the
free cash flow of The Timber Company, and/or the operating profit of the
participant's individual region or profit center. For 1998, the earnings per
share performance standard was $1.60 per share, the median of analyst
estimates at the time standards were set. The free cash flow performance
standard, as well as the field operating profit standards for each profit
center, were based on a combination of The Timber Company's long-range plans
and annual budget estimates.
A subjective assessment determined the remaining 30% to 40% of final awards
under the TTC Bonus Plan. This assessment is a discretionary award based on
progress with respect to key initiatives and business drivers consistent with
the overall operating objectives of The Timber Company set at the beginning of
the year, and may allow for a partial payout in years when objective
performance is negatively impacted by events beyond the control of
participants.
Target awards under the TTC Bonus Plan were set by the Committee as a
percentage of base salary and ranged from 10% to 55% of salary. Final award
percentages earned were based on the level of target performance standards
achieved. Bonuses could be earned under the objective component at three
different levels: minimum, target and maximum, at which points 50%, 100% and
200%, respectively, of the objective target bonus could be earned. Under the
subjective component, a participant could earn anywhere from 0% to 200% of the
subjective target bonus. The total bonus (objective and subjective components)
payable to each participant was limited to 100% of base salary.
For 1998, performance against the objective bonus criteria of the TTC Bonus
Plan resulted in between 50% and 200% of the target objective bonus being
earned by participants. Subjective awards ranged between 0% and 200% of
target, depending upon assessments of individual performance. Total awards
(both objective and subjective components) payable under the TTC Bonus Plan
for 1998 ranged between 8% and 100% of base salary.
Based on competitive data used by the Corporation in developing annual cash
incentive compensation opportunities under the EVIP and the TTC Bonus Plan,
total bonuses paid to the Named Executive Officers (other than Mr. Correll,
whose bonus is discussed above, and Mr. Glass, for whom there was no
comparable position at Comparison Group companies) ranged between 75% and 102%
of the median bonuses paid to executives in comparable positions at Comparison
Group companies.
Long-Term Equity Incentive Plans. The Georgia-Pacific Corporation/Georgia-
Pacific Group 1997 Long-Term Incentive Plan ("Georgia-Pacific Group LTIP") and
the Georgia-Pacific Corporation/Timber Group 1997 Long-Term Incentive Plan
("The Timber Company LTIP") were approved by shareholders on December 16, 1997
in conjunction with the Letter Stock Recapitalization. These Plans are
designed
13
to increase the Corporation's ability, given its two classes of common stock
separately reflecting the performance of distinct operating groups, to
structure incentives for employees of each group that are tied directly to the
share price performance of that group. The Committee has the authority under
each of these Plans to set the terms and conditions of any grants and awards,
provided that the exercise price of any incentive stock option cannot be less
than 100% of the fair market value of the underlying stock on the date of
grant of the award.
Georgia-Pacific Group LTIP. The Georgia-Pacific Group LTIP authorizes grants
of stock options, restricted stock and performance awards with respect to
Georgia-Pacific Group Stock. All Georgia-Pacific Group executive officers and
other key employees designated by the Committee as participants in the
Georgia-Pacific Group LTIP were granted options to purchase Georgia-Pacific
Group Stock effective January 29, 1998. Mr. Correll was awarded options to
purchase 93,800 shares of Georgia-Pacific Group Stock. As required by the
Georgia-Pacific Group LTIP, the exercise price of the options granted in 1998
was $56.41, the fair market value of Georgia-Pacific Group Stock on the date
of grant. These options will expire January 29, 2008 and will become
exercisable over three years with one-third of each grant vesting on each of
the first three anniversaries of the grant date. In the event of a change in
control of the Corporation, these options become immediately exercisable for
the remainder of their term. The Committee does not currently intend to grant
awards under the Georgia-Pacific Group LTIP to managers of The Timber Company.
In addition, after reviewing Mr. Correll's total compensation package for
1998, the Committee approved a discretionary grant to Mr. Correll of options
to purchase 50,000 shares of Georgia-Pacific Group Stock. These options were
granted effective January 29, 1998 at the same exercise price and subject to
the same vesting schedule and other terms as the annual grants for 1998 under
the Georgia-Pacific Group LTIP, provided that these discretionary options will
expire January 29, 2003. The Committee determined that this discretionary
grant was appropriate in order to further align Mr. Correll's economic
interests with those of the shareholders and to bring his total compensation
to the mid-point of competitive chief executive officer positions.
The Timber Company LTIP. The Timber Company LTIP authorizes grants of stock
options, restricted stock and performance awards with respect to The Timber
Company Stock. On December 17, 1997 seven executives of the Corporation, along
with key managers of The Timber Company, were granted stock options pursuant
to The Timber Company LTIP. These options represented their total stock option
awards under The Timber Company LTIP for fiscal years 1998 and 1999.
Accordingly, no stock option grants were made under The Timber Company LTIP in
1998. At the current time, the Committee does not intend to award further
grants under The Timber Company LTIP to these executives, including Mr.
Correll, until the year 2000.
The foregoing report has been furnished by the following members of the
Compensation Committee of the Corporation's Board of Directors:
Richard V. Giordano, Chairman
Donald V. Fites
David R. Goode
M. Douglas Ivester
James B. Williams
14
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
During 1998, Mr. Williams was Chairman and Chief Executive Officer of
SunTrust Banks, Inc. (until his retirement in March 1998) and served on the
Compensation Committee of the Board of Directors of the Corporation. Mr.
Correll, Chairman, Chief Executive Officer and President of the Corporation,
served as a director of SunTrust Banks, Inc. during 1998.
Five-Year Shareholder Return Comparison
Set forth below are line-graph presentations comparing cumulative
shareholder returns for: (1) the Corporation's former common stock, the S&P
500 Stock Index and the Standard & Poor's Paper and Forest Products Index from
December 31, 1993 until December 16, 1997 (immediately prior to the Letter
Stock Recapitalization); (2) Georgia-Pacific Group Stock, the S&P 500 Stock
Index and the Standard & Poor's Paper and Forest Products Index from December
17, 1997 to December 31, 1998; and (3) The Timber Company Stock, the Standard
& Poor's Midcap 400 Stock Index and an industry peer group from December 17,
1997 to December 31, 1998.
TOTAL SHAREHOLDER RETURNS
DECEMBER 31, 1993 -- DECEMBER 16, 1997*
1993 1994 1995 1996 12/16/97
- -------------------------------------------------------------------
Georgia-Pacific Corporation $100 $106.39 $104.56 $112.85 $136.56
- -------------------------------------------------------------------
S&P 500 P&FP Stock Index** $100 $104.20 $114.72 $126.90 $137.85
- -------------------------------------------------------------------
S&P 500 Stock Index** $100 $101.32 $139.40 $171.40 $227.41
- --------
* Assumes that the value of the investment in Georgia-Pacific Corporation
common stock and each index was $100 on December 31, 1993 and that all
dividends were reinvested.
** Provided by Standard & Poor's Compustat, a division of The McGraw-Hill
Companies.
15
TOTAL SHAREHOLDER RETURNS -- GEORGIA-PACIFIC GROUP
DECEMBER 17, 1997 -- DECEMBER 31, 1998*
December 17, 1997 1998
---------------------------------------------------------
Georgia-Pacific Group $100 $ 94.55
---------------------------------------------------------
S&P 500 P&FP Stock Index** $100 $100.67
---------------------------------------------------------
S&P 500 Stock Index** $100 $129.23
- --------
* Assumes that the value of the investment in Georgia-Pacific Group Stock and
each index was $100 on December 17, 1997 and that all dividends were
reinvested.
** Provided by Standard & Poor's Compustat, a division of The McGraw-Hill
Companies.
TOTAL SHAREHOLDER RETURNS -- THE TIMBER COMPANY
DECEMBER 17, 1997 -- DECEMBER 31, 1998*
December 17, 1997 1998
-----------------------------------------------------
The Timber Company $100 $ 99.58
-----------------------------------------------------
S&P Midcap 400 Index** $100 $122.33
-----------------------------------------------------
Industry Peer Group*** $100 $91.29
- --------
* Assumes that the value of the investment in The Timber Company Stock and
each index was $100 on December 17, 1997 and that all dividends were
reinvested.
** Provided by Standard & Poor's Compustat, a division of The McGraw-Hill
Companies.
*** Consisting of Deltic Timber Corp., Plum Creek Timber Co. LP, Crown Pacific
Partners LP and U.S. Timberlands Co. LP.
16
Compensation of Executive Officers
The following table sets forth information concerning the compensation of
the Corporation's Chief Executive Officer and each of the other four most
highly compensated executive officers of the Corporation at the end of 1998.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards(3)
-------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Bonus Compensation Options/SARs Compensation
Principal Position Year Salary($) ($)(1) ($)(2) (#)(4) ($)(5)
- ------------------ ---- ---------- -------- ------------ ------------ ------------
Alston D. Correll................... 1998 $1,050,000 $399,600 $1,399,570 143,800 $ 6,000
Chairman, Chief Executive Officer 1997 1,050,000 -0- 1,087,522 614,600 6,000
and President 1996 1,050,000 -0- 209,153 227,000 6,000
John F. McGovern.................... 1998 465,000 265,000 349,779 28,000 11,208
Executive Vice President-Finance 1997 440,000 233,300 190,731 155,900 11,000
and Chief Financial Officer 1996 420,000 120,500 25,971 84,000 10,800
Lee M. Thomas....................... 1998 440,000 210,000 359,930 32,300 9,808
Executive Vice President-Paper 1997 404,388 196,000 7,011 50,200 9,684
and Chemicals 1996 357,100 82,600 8,307 39,600 9,777
Donald L. Glass..................... 1998 420,000 420,000 406,759 -0- 9,415
Executive Vice President-Timber and 1997 383,315 251,000 365,023 299,600 8,905
Chief Executive Officer-The Timber 1996 347,000 108,600 30,271 46,800 8,972
Company
Ronald L. Paul...................... 1998 400,000 300,000 7,067 32,300 6,000
Executive Vice President- 1997 300,000 195,900 6,556 19,200 5,700
Distribution and Wood Products 1996 258,000 62,900 1,624 18,600 2,325
- --------
(1) Reflects bonuses paid under the EVIP, the terms of which are further
described on page 12 under "Economic Value Incentive Plan".
(2) Other Annual Compensation consists of annual compensation not properly
categorized as salary or bonus. It includes payments made by the
Corporation on behalf of Mr. Correll, Mr. McGovern, Mr. Thomas and Mr.
Glass pursuant to the 1990 Long-Term Incentive Plan (the "1990 LTIP").
Under the 1990 LTIP, at the time restricted shares of Common Stock
awarded under the Plan become vested, the Corporation will pay to the
appropriate taxing authorities a cash amount designed to approximate the
amount of federal and state income taxes which would be incurred by the
participant as a result of the vesting of the awarded shares and as a
result of such cash payment, as if the participant were subject to such
taxes at the highest statutory marginal federal and Georgia income tax
rates on personal service income for the calendar year in which the award
vests. The amount of the cash payment may not exceed 100% of the market
value of the vested shares on the date of vesting. Pursuant to the normal
vesting provisions of the 1990 LTIP, shares awarded to Mr. Correll, Mr.
McGovern, Mr. Thomas and Mr. Glass in November and December 1993 vested
in November and December 1998. Accordingly, cash payments in the
following amounts were made on their behalf in connection with such
vesting: Mr. Correll, $1,268,012; Mr. McGovern, $333,872; Mr. Thomas,
$337,375; and Mr. Glass, $391,356. Other Annual Compensation for Mr.
Correll also includes accounting fees of $25,000, which exceeded 25% of
the total personal benefits provided to Mr. Correll in 1998.
(3) At December 31, 1998, 6,000 restricted shares of Georgia-Pacific Group
Stock and 6,000 restricted shares of The Timber Company Stock, with an
aggregate value of $494,250, were beneficially held by Mr. Correll
pursuant to the 1990 LTIP.
17
(4) A breakdown of the options set forth in the table, by class of Common
Stock, is as follows. The 1997 and 1996 options reflect the conversion, in
conjunction with the Letter Stock Recapitalization, of each option to
purchase the Corporation's former common stock into two independently
exercisable options, one to purchase Georgia-Pacific Group Stock and one
to purchase The Timber Company Stock.
Year Georgia-Pacific Group Stock The Timber Company Stock
---- --------------------------- ------------------------
Mr. Correll .... 1998 143,800 -0-
1997 134,600 480,000
1996 113,500 113,500
Mr. McGovern ... 1998 28,000 -0-
1997 35,000 120,900
1996 42,000 42,000
Mr. Thomas ..... 1998 32,300 -0-
1997 25,100 25,100
1996 19,800 19,800
Mr. Glass ...... 1998 -0- -0-
1997 25,100 274,500
1996 23,400 23,400
Mr. Paul ....... 1998 32,300 -0-
1997 9,600 9,600
1996 9,300 9,300
(5) Includes contributions by the Corporation to the Georgia-Pacific
Corporation Savings and Capital Growth Plan on behalf of the named
individuals in the following amounts for 1998: Mr. Correll, $3,000; Mr.
McGovern, $8,358; Mr. Thomas, $6,807; Mr. Glass, $6,865; and Mr. Paul,
$3,000. Also includes premiums for term life insurance for the benefit of
the named individuals paid by the Corporation in the following amounts for
1998: Mr. Correll, $3,000; Mr. McGovern $2,850; Mr. Thomas, $3,000; Mr.
Glass, $2,550; and Mr. Paul, $3,000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
Georgia-Pacific Group Stock Options(2)
Individual Grants
----------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs Exercise
Underlying Granted to or Base Grant Date
Options/SARs Employees in Price Expiration Present
Name Granted(#)(3) Fiscal Year ($/Sh) Date Value($)(4)
- ---- ------------- ------------ -------- ---------- -----------
Alston D. Correll... 93,800 6.86% $56.41 1/29/08 $2,051,494
50,000 3.66 56.41 1/29/03 784,862
John F. McGovern.... 28,000 2.05 56.41 1/29/08 612,386
Lee M. Thomas....... 32,300 2.36 56.41 1/29/08 706,431
Donald L. Glass..... -0-
Ronald L. Paul...... 32,300 2.36 56.41 1/29/08 706,431
- --------
(1) There were no SAR grants in 1998.
(2) All of the options shown above were granted under the Georgia-Pacific
Group LTIP. No options to purchase The Timber Company Stock were granted
in 1998.
(3) These options become exercisable over three years from the date of grant
with one-third of each grant vesting on each of the first three
anniversaries of the grant date. In the event of a change in control of
the Corporation, these options become immediately exercisable for the
remainder of their term.
18
(4) This valuation, based on the Black-Scholes option pricing model, is
provided pursuant to Securities and Exchange Commission disclosure rules.
The actual value, if any, an executive officer may realize ultimately
depends on the market value of Georgia-Pacific Group Stock at a future
date, and there is no assurance that the value realized will be at or near
the value estimated by the Black-Scholes model. Assumptions used to
calculate this value for options expiring on 1/29/08 are as follows: (i)
an estimated volatility of 27.50%; (ii) an estimated dividend yield of
1.77%; (iii) a risk-free rate of 6.50%; (iv) an expected life of the
option of 10 years; and (v) an option forfeiture rate of 3% per year over
the vesting period. Assumptions used to calculate this value for options
expiring on 1/29/03 are as follows: (i) an estimated volatility of 27.50%;
(ii) an estimated dividend yield of 1.77%; (iii) a risk-free rate of
6.00%; (iv) an expected life of the option of 5 years; and (v) an option
forfeiture rate of 3% per year over the vesting period.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES(1)
Georgia-Pacific Group Stock Options
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at Fiscal In-The-Money
Year-End(#) Options/SARs($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Alston D. Correll........... 83,000 391,900 $105,617 $1,860,942
John F. McGovern............ 13,600 105,000 17,306 549,623
Donald L. Glass............. 12,000 48,500 15,270 304,685
Lee M. Thomas............... 12,000 77,200 15,270 349,434
Ronald L. Paul.............. -0- 51,200 -0- 188,469
The Timber Company Stock Options
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at Fiscal In-The-Money
Year-End(#) Options/SARs($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Alston D. Correll........... 169,350 507,150 $50,007 $648,270
John F. McGovern............ 35,075 141,425 8,194 240,312
Donald L. Glass............. 74,350 235,550 7,230 127,285
Lee M. Thomas............... 12,000 44,900 7,230 116,980
Ronald L. Paul.............. -0- 18,900 -0- 49,685
- --------
(1) There were no SAR or stock option exercises by any of the named executives
in 1998, and no unexercised SARs were held by any of the named executives
at December 31, 1998.
19
Change of Control Agreements. The Corporation has agreements with each of
its officers providing for specified payments and other benefits if, during
the three-year period following a change in control of the Corporation, the
officer's employment is terminated (i) by the Corporation or its successor for
reasons other than cause, disability or death, or (ii) by the officer if there
has been an adverse change in, among other things, the officer's position,
authority, duties or responsibilities, any failure by the Corporation to pay
the officer the compensation and benefits he or she was receiving prior to the
change in control, or any change in the officer's place of employment other
than to Atlanta, Georgia. In these circumstances, the officer will receive (a)
a lump sum payment equal to his or her annual salary at termination and the
average of his or her three most recent annual bonus awards, multiplied by the
smaller of a number (i) between two and three (depending on the officer's
present title and responsibilities) or (ii) the number of years (and fraction
thereof) between the termination date and the date he or she reaches age 65,
plus (b) an amount necessary to offset any federal excise and related income
taxes payable by him or her on all payments received under the agreement. The
officer will also receive a lump sum equal to contributions, and interest
thereon, which the Corporation would have made for the benefit of the officer
to the Georgia-Pacific Salaried Employees Retirement Plan ("SERP") and the
Georgia-Pacific Savings and Capital Growth Plan ("Savings Plan"), medical and
welfare benefits, age and service credit under his or her officer retirement
agreement, and other benefits, in each case equal to those which would have
been provided if the officer's employment had not been terminated. In
addition, in accordance with the existing terms of the Corporation's long-term
incentive plans, in the event of a change in control all outstanding stock
options held by the officer shall become exercisable, and any awards of
restricted stock shall vest.
The Corporation has authorized a grantor trust under Sections 671 through
677 of the Internal Revenue Code pursuant to which the Corporation will, if
specified events occur, transfer to a trustee the funds necessary to pay
amounts owed by it to its officers under these termination agreements, the
officers' retirement agreements and certain other benefit plans. Under the
trust agreement, the trustee will pay the beneficiaries of the trust the
amounts to which they are entitled under such agreements and plans, subject to
claims of the Corporation's creditors.
Officers' Retirement Plan ("Retirement Plan"). The Retirement Plan is
represented by separate but substantially similar agreements with each officer
of the Corporation. Subject to certain offsets, the Retirement Plan provides
that the Corporation will make post-retirement monthly payments to each
officer for life, based on an aggregate annual amount equal to 50% of the
officer's average annual compensation (including bonuses under management
incentive plans) during the officer's last four years of employment and, at
the officer's death, will continue to pay to the officer's surviving spouse,
for the remainder of such spouse's life, 50% of the amount that had been
payable to the officer. As an alternative to the joint and 50% survivor
annuity, an officer may elect one of the following actuarially equivalent
benefit payment forms: (a) a joint and 100% survivor annuity or (b) 120 equal
monthly installments. Full benefits are payable upon retirement after
attaining age 55 with 15 years of service (actuarially reduced to reflect
early commencement for retirements before age 62) or age 65. Benefits
generally are available to an officer who terminates employment with the
Corporation before age 65 with at least three years of service but are not
payable until age 62. Such termination benefits are reduced proportionately if
total service at termination of employment is less than 15 years. Disability
and death benefits are also provided.
Retirement Plan benefits are subject to offset. Such offsets include the
amounts which would become payable to the officer and to the officer's
surviving spouse under the SERP and the value of the Corporation's
contributions to the Savings Plan, in which virtually all salaried employees
of the Corporation or its participating subsidiaries are eligible to
participate. In the case of both the Savings Plan and the SERP, the officer's
interest is converted to an actuarially equivalent joint and 50% survivor
annuity for offset purposes. If, after retirement, an officer competes with
the Corporation, solicits its customers or employees, or discloses trade
secrets or confidential information of the Corporation, benefits under the
Retirement Plan terminate.
20
The table below sets forth certain information relating to benefits under
the Retirement Plan with respect to the named individuals (a) assuming
retirement as of January 1, 1999, and (b) assuming retirement at age 65, using
projected years of credited service at age 65 and final average compensation
as of December 31, 1998. The benefits disclosed in the table represent the
maximum estimated annual benefits under the Retirement Plan, without reduction
for offsets provided for in such Plan. Because such amounts exceed the total
of such offsetting payments, the amounts disclosed in the table below
represent the estimated maximum aggregate benefit payable to the named
executive officers under all pension and other defined benefit or actuarial
plans.
Annual Benefit Based on 50% of Final
Average Compensation(1)
Retirement on January 1, Retirement at
1999 Age 65
------------------------- -------------
Annual Years of Annual
Benefits Credited Service Benefit(2)
-------- ---------------- -------------
Mr. Correll............................. $484,300 10 $726,450
Mr. McGovern............................ 330,184 17 330,184
Mr. Thomas.............................. 94,865 5 284,594
Mr. Glass............................... 304,813 26 304,813
Mr. Paul................................ 44,450 3 222,250
- --------
(1) "Compensation" for these purposes means only base salary (including salary
deferred as before-tax contributions to the Savings Plan) and annual
incentive bonuses, if any, and excludes any other cash or non-cash
compensation items.
(2) Represents the formula benefit at the normal retirement age of 65 under
the Retirement Plan, based on average annual compensation during the
period 1995-1998.
PROPOSAL II -- SHAREHOLDER PROPOSAL
(PHASE-OUT OF CHLORINE-BASED CHEMICALS)
Seven religious organizations/1/ which are shareholders have notified the
Corporation that they intend to present the resolution set forth below to the
Annual Meeting for action by the shareholders. Such shareholders' statement in
support of the resolution, along with management's statement in opposition,
are also set forth below. The address of each proponent, together with the
class and number of shares of Common Stock held by each proponent, will be
furnished promptly by the Corporation to any person who requests such
information, either orally or in writing.
Proxies solicited on behalf of the Board will be voted AGAINST this proposal
unless shareholders specify a contrary choice in their proxies.
SHAREHOLDER RESOLUTION
The Proponents, seven Religious institutions, have serious reservations
about Georgia-Pacific's use of chlorine-based bleach chemicals. Undesirable
byproducts from the use of chlorinated compounds are toxic, long-lasting and
so pervasive that they are incompatible with the best long-term interests of
our Company and society. The Proponents feel these toxic effects can be
avoided.
HEALTH CONCERNS
Because of their persistence, chlorine-based toxins are found everywhere on
earth and exist in the bodies of every living being. The US-EPA reports that
human body-levels of these toxins are already at dangerous levels. These
chemicals can cause:
. Cancer . Reproductive Failure
. Birth Defects . Endocrine (Hormone) Disruption
. Learning Impairment
- --------
/1/Adrian Dominican Sisters; Franciscan Friars, Holy Name Province; General
Board of Pension and Health Benefits of the United Methodist Church;
Rabbinical Pension Board; Reformed Church in America; United Church of Christ,
Board for Homeland Ministries; Women's Division of the United Methodist
Church.
21
Chlorinated compounds "bio-accumulate" in living organisms, magnifying each
step up the food chain. Young children are especially threatened due to
smaller size, habits, and bodily development.
It concerns us that it was reported in Toxicology and Industrial Health
[1998] that a number of international experts (that included US-EPA and the US
Centers for Disease Control) confirmed: "Research since 1991 has reinforced
concerns over...problems posed to human health and ecological systems by
endocrine-disrupting chemicals."
The International Joint Commission (while noting chlorine-dioxide bleaching
reduces pollution) has stated that persistent, bioaccumulative toxins are "too
risky to the biosphere and humans to permit their release in any quantity."
ECONOMICALLY ESTABLISHED
Totally Chlorine-Free (TCF) technologies are successfully proven in
commercial use around the world. Europe's market has moved from 3% to 25% TCF
since 1991. Europe has higher costs for labor, raw materials, and R&D--yet its
TCF producers are leaders in profitability, low-cost output, and pollution-
prevention.
Because new EPA regulations require certain bleachplant upgrades within
three years, this is the optimal time for Georgia-Pacific to begin phasing-out
chlorine-based chemicals altogether. For the Company to effect such a
transition, all new capital expenditures should be on production-based systems
free from chlorine-based chemicals.
EPA's new regulations set minimum standards (termed "Best Available
Technology") that essentially replace elemental chlorine with chlorine-dioxide
(called "ECF" bleaching). While chlorine-dioxide bleaching reduces some
pollutants, we are concerned that it still creates persistent, bioaccumulative
toxins that undermine human and environmental health. Our company should look
beyond the minimums toward TCF technologies.
Georgia-Pacific created millions of pounds of chlorine-based Production-
Related Waste in 1996 alone. The Harvard Business Review wrote: "pollution
often reveals flaws in the product design or production process." Toxic
chlorinated waste can be avoided by eliminating use of chlorine-based
chemicals.
THEREFORE, BE IT RESOLVED: Shareholders request the Board to promptly close
our remaining elemental chlorine generator, and to report by the 2000 meeting
on plans to phase-out chlorine-based compounds.
SUPPORTING STATEMENT
. Georgia-Pacific can employ competitive totally chlorine-free (TCF)
solutions that boost productivity, avoid liabilities, and significantly
protect human health.
Please Vote YES for this common-sense proposal.
22
MANAGEMENT'S STATEMENT IN OPPOSITION
The Board of Directors strongly urges you to vote against this proposal. The
Corporation believes that no significant environmental, health or safety
benefit would be realized from implementing total chlorine free ("TCF")
processes in its mill system, as advocated by the proponents. Further, since
implementing such a plan would cost the Corporation approximately $500 million
and that none of its major domestic kraft pulp and paper competitors are
utilizing TCF processes to any material degree, the Corporation would be put
at an insurmountable economic disadvantage. In fact, many of the proponents
have submitted proposals nearly identical to this one to several of the
Corporation's competitors, in particular Champion International, International
Paper, Proctor & Gamble and Union Camp. None of these proposals has received
more than 7% of the vote.
Since the late 1980's, when advanced analytical testing methods first
suggested that dioxins and furans were associated with kraft pulp and paper
mills that used elemental chlorine as a bleaching agent, Georgia-Pacific has
been developing bleaching processes aimed at eliminating dioxins and furans in
mill effluent. After extensive analyses of various bleaching technologies, the
Corporation has spent approximately $100 million and plans to spend another
$190 million to implement processes that substitute chlorine dioxide in place
of elemental chlorine (known as "elemental chlorine free" or "ECF"
technology). The United States Environmental Protection Agency ("EPA") has
recently determined that ECF processes are "Best Available Technology."
Georgia-Pacific believes that ECF technology will eliminate virtually all
dioxins, furans and chlorinated organics of any environmental significance in
mill effluent. At present, six of the Corporation's ten pulp and paper mills
have eliminated elemental chlorine and the remainder have made substantial
progress towards that goal through the use of ECF technology. Georgia-Pacific
plans to complete conversion of all of its pulp and paper mills to ECF
technology in less than two years. The Corporation estimates that to convert
its pulp and paper mills to TCF technology, as advocated by the proponents,
would cost the Corporation $500 million. Notwithstanding the fact that the
process of eliminating elemental chlorine at some of the Corporation's mills
has not been completed, there have not been detectable levels of dioxin in the
effluent from these facilities for several years, other than rare instances of
trace readings.
-- Management believes that neither the EPA nor any international
governmental body has publicly claimed that effluent from ECF mills
results in a significant health or environmental threat. In fact, the
opposite is true: agencies that have evaluated ECF bleaching, such as
EPA, regard ECF bleaching as a significant advance in environmental
stewardship.
A recent study by an expert panel of scientists appointed by the Swedish
Environmental Protection Agency and industry concluded that modern mills
using ECF technology "give very low emissions of chlorinated organic
substances and high-chlorinated phenolic compounds generally cannot be
detected in the effluent." Under new EPA regulations, highly chlorinated
phenolic compounds, the primary substances of concern with regard to bio-
accumulation, must be at non-detectable levels in less than two years.
The Corporation believes that conversion to ECF bleaching will achieve
this goal, based on test results from its ECF mills.
-- Management also believes that TCF pulp is qualitatively inferior to ECF
pulp and requires more trees per unit of pulp to manufacture.
-- Contrary to the Proponents' assertions, the market for TCF pulp is small
and stagnant. A recent study indicates that TCF pulp constitutes about 6%
of the world market and, as in earlier years, TCF pulp's market share did
not increase. By contrast, ECF bleached pulp increased its market share
for the eighth year in a row, up to approximately 54% of the world
market.
-- Given the April 2001 deadline set for Cluster Rule compliance, EPA has
concluded that TCF processes are not currently available from a technical
standpoint for the bulk of the types of products that the Corporation
makes at 8 out of 10 of its pulp and paper facilities.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
SHAREHOLDER PROPOSAL.
23
PROPOSAL III -- SHAREHOLDER PROPOSAL (TERMINATION OF SHAREHOLDER RIGHTS PLAN
OR SHAREHOLDER ACTION THEREON)
The Amalgamated Bank of New York LongView Collective Investment Fund
("LongView"), located at 11-15 Union Square, New York, New York 10003, has
notified the Corporation that it intends to present the resolution set forth
below to the Annual Meeting for action by the shareholders. LongView's
statement in support of such resolution, along with management's statement in
opposition, are also set forth below. LongView beneficially owns 26,300 shares
of Georgia-Pacific Group Stock.
Proxies solicited on behalf of the Board will be voted AGAINST this proposal
unless shareholders specify a contrary choice in their proxies.
SHAREHOLDER RESOLUTION
RESOLVED: That the shareholders of Georgia-Pacific Corporation ("Georgia-
Pacific" or the "Company") request the Board of Directors to redeem the
shareholder rights previously issued unless such issuance is approved by the
affirmative vote of shareholders, to be held as soon as may be practicable.
SUPPORTING STATEMENT
In July 1989 the Board of Directors decided, without stockholder approval,
to issue certain rights under a shareholder rights plan. In December 1997, the
Board, again without obtaining shareholder approval, extended that plan for
ten years. In our view, the existence of such rights, commonly known as a
"poison pill, " can operate as an anti-takeover device that injures
stockholders by reducing management accountability and adversely affecting
stockholder value.
Although management and the Board of Directors should have appropriate tools
to ensure that all stockholders benefit from any proposal to acquire the
Corporation, we do not believe that the future possibility of a takeover
justifies the unilateral imposition or renewal of such a poison pill. Instead,
we believe that the stockholders should have the right to vote on the
necessity of such a powerful tool, which could be used to entrench existing
management.
The negative effects of poison pills on the trading value of companies'
stock have been the subject of extensive research. A 1986 study (covering 245
companies adopting poison pills between 1983 and July 1986) was prepared by
the SEC's Office of the Chief Economist on the effect of poison pills on the
wealth of target stockholders. It states that "empirical tests, taken
together, show that poison pills are harmful to target stockholders, on net."
A 1992 study by Professor John Pound of Harvard's Corporate Research Project
and Lilli A. Gordon of the Gordon Group found a correlation between high
corporate performance and the absence of poison pills.
With the 1989 plan set to expire later this year, we propose this By-law
amendment, which would require stockholder approval of such rights plans.
WE URGE YOU TO VOTE FOR THIS RESOLUTION!
24
MANAGEMENT'S STATEMENT IN OPPOSITION
This proposal requests the Board of Directors to redeem certain rights
currently held by shareholders pursuant to the Corporation's shareholder
rights plan (the "Rights Plan"), or to submit the continuation of the Rights
Plan to a vote of the shareholders. The Board of Directors strongly urges you
to vote against this proposal because it believes the Rights Plan is an
important tool enabling your Board to protect the interests of shareholders
against abusive takeover practices and to oppose takeover attempts for the
Corporation at prices which do not reflect its true value. For example, in
September 1998 when Georgia-Pacific Group common stock was trading at prices
that were more than 50% lower than in May 1998 and more than 50% lower than in
March 1999, in the absence of the Rights Plan a hostile bidder might have been
able to exploit this volatility and acquire your shares at a price
significantly below what the Board of Directors considers to be their true
value.
The Corporation is a Georgia corporation and is governed by the Georgia
Business Corporation Code (the "Code"). Under the Code, the Board has the
responsibility to manage and direct the business and affairs of the
Corporation and is at all times bound by its fiduciary obligations to the
shareholders of the Corporation. Following careful review of comprehensive
materials prepared for the Board, including materials prepared by outside
advisors, the Board adopted the Rights Plan in 1989, and extended it in 1997,
because the Board determined in each instance that the Rights Plan is in the
best interests of the shareholders of the Corporation. The adoption and
extension of the Rights Plan were valid and proper exercises of the Board's
responsibilities and fiduciary obligations under Georgia law. In fact, Section
14-2-624(c) of the Code specifically authorizes the board of directors of a
Georgia corporation to determine the terms of rights, such as those issued
under the Rights Plan, "in its sole discretion."
The Board further believes that this negotiating tool in the face of an
inadequate or unfair takeover attempt is particularly critical to a company in
a highly cyclical industry like the forest products industry and whose stock
is subject to significant volatility. For example, on May 12, 1998 shares of
Georgia-Pacific Group common stock closed at $79.375 per share. On August 12,
1998, just three months later, the stock closed at $50.25, nearly 37% lower;
and on September 11, 1998 the stock closed at $37.75, down over 52% in less
than four months. Only six months later, on March 18, 1999 the stock closed at
$79.50, an increase of more than 110%. In the absence of the Rights Plan, a
hostile bidder in September 1998, even one offering a substantial premium over
the then current market price, might have been able to acquire your shares at
a price well below their true value.
The Board also believes that any decision to terminate the Rights Plan and
redeem the rights should be made in the context of a specific acquisition
proposal. The Board is cognizant of its fiduciary duties and responsibilities
to the Corporation's shareholders when evaluating the merits of an acquisition
proposal. If the Board determines, in the exercise of its fiduciary
obligations to the shareholders, that such a proposal is fair and in the best
interests of the shareholders, the Rights Plan provides that the Board can
approve the proposal and redeem the rights. However, to do so now in the
absence of such a proposal would leave the Corporation's shareholders
unprotected in the event of an unsolicited takeover offer and, in the Board's
view, would potentially reduce long-term value for shareholders.
The Board, which, with the exception of Mr. Correll, is made up entirely of
outside directors, believes that the Rights Plan serves the best interests of
the shareholders. If there were an offer to purchase the Corporation on terms
that were unfair to some or all shareholders, the Board believes the Rights
Plan would encourage the bidder to negotiate the price and other terms in good
faith with the Board. The Rights Plan is designed to protect shareholders
against potential abuses during the bidding process. In this regard, it is
important to remember that hostile acquirors are interested in buying a
company as cheaply as they can, and, in attempting to do so, may use coercive
tactics such as partial and two-tiered tender offers and creeping stock
accumulation programs which do not treat
25
all shareholders fairly and equally. The Board believes that the Rights Plan
provides it an additional degree of control in a takeover situation by
allowing the Board sufficient time to calmly evaluate any potential buyer and
takeover proposal and, if necessary, to explore alternatives. As such, the
Board would be in a better position to negotiate for fair value for all of the
Corporation's shareholders. The true test of the benefits of the Rights Plan
is how your Board uses it. Therefore, the real issue is whether the
shareholders of the Corporation can rely upon the Board to perform its
fiduciary obligations and utilize this tool properly if and when the need
arises. In this regard, your Board believes that shareholders should feel
confident about the directors they have elected.
The Board also believes that shareholder rights plans have not historically
prevented hostile bids, but instead have been a factor in increasing the
prices paid to shareholders in such cases. In March and October 1998,
Georgeson & Company, a nationally recognized proxy solicitation firm, found
that companies adopting rights plans did not diminish the value of their
stock, and, more importantly, that companies with rights plans received higher
takeover premiums than companies without rights plans. The March 1998
Georgeson study concluded that companies with rights plans received takeover
premiums averaging 69% higher than those received by companies not protected
by such plans. Similarly, a March 1993 study by Robert Comment and G. William
Schwert of the Bradley Policy Research Center, University of Rochester,
determined that rights plans do not deter takeovers. In addition, this study
found that rights plans are associated with higher takeover premiums paid to
selling stockholders.
Based on its business experience, and its knowledge of the Corporation and
the industry in which the Corporation operates, the Board believes that the
Rights Plan is in the best interests of shareholders AND RECOMMENDS A VOTE
AGAINST THE ADOPTION OF THIS SHAREHOLDER PROPOSAL.
OTHER MATTERS
Independent Public Accountants
Arthur Andersen LLP has audited the accounts of the Corporation and its
subsidiaries since 1948 and will continue in that capacity during 1999. A
representative of Arthur Andersen LLP will be present at the Annual Meeting
with the opportunity to make a statement and will be available to respond to
appropriate questions.
Solicitation of Proxies
Innisfree M&A Incorporated has been engaged by the Corporation to assist in
the solicitation of proxies at a cost not to exceed approximately $15,000. In
addition to the solicitation of proxies by mail through Innisfree M&A
Incorporated, other means of communication such as telephone, facsimile and
personal interview may be employed by the officers, directors and regular
employees of the Corporation. All costs of the solicitation of proxies will be
borne by the Corporation. The Corporation will reimburse brokerage firms and
other custodians, nominees and fiduciaries for reasonable expenses incurred by
them in sending proxy material and annual reports to the beneficial owners of
stock in accordance with the schedule of charges approved by the New York
Stock Exchange.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers to file with the Securities and
Exchange Commission and the New York Stock Exchange reports of changes in
ownership of Common Stock. Securities and Exchange Commission regulations
require that such directors and executive officers furnish to the Corporation
copies of all Section 16(a) reports they file. To the Corporation's knowledge,
based solely on review of the copies
26
of such reports furnished to the Corporation and written representations that
no other reports were required, all of its officers and directors complied
with applicable Section 16(a) filing requirements during the fiscal year ended
December 31, 1998.
Shareholder Proposals
Shareholder proposals (other than director nominations discussed under
"Shareholder Nominations for Election of Directors" on page 10) for the Annual
Meeting of Shareholders to be held on May 2, 2000, must be delivered to the
Secretary of the Corporation at the Corporation's executive office in Atlanta,
Georgia, on or prior to December 1, 1999 in order to be presented for a vote
of the shareholders at the 2000 meeting. If timely delivered to the Secretary,
such proposals may be included in the Corporation's Proxy Statement for the
2000 meeting, provided the proponent(s) satisfies all applicable rules of the
Securities and Exchange Commission relating to shareholder proposals.
By order of the Board of Directors,
[Signature of Kenneth F. Khoury appears here]
Kenneth F. Khoury
Vice President, Deputy General
Counsel and Secretary
Atlanta, Georgia
March 31, 1999
27
The Corporation's 1998 Annual Report to Shareholders, which includes audited
financial statements for Georgia-Pacific Group and The Timber Company, has
been mailed separately to shareholders of the Corporation, and audited 1998
consolidated financial statements for the Corporation have been mailed to
shareholders with this Proxy Statement. Neither the 1998 Annual Report nor the
1998 consolidated financial statements form any part of the material for the
solicitation of proxies.
A copy of the Corporation's 1998 Annual Report on Form 10-K to the
Securities and Exchange Commission will be supplied without charge upon
request. Annual Statistical Updates are also available. Requests for such
information should be directed to:
Investor Relations
Georgia-Pacific Corporation
P. O. Box 105605
Atlanta, Georgia 30348
(404) 652-5555
EVA is a registered trademark of Stern Stewart & Co.
Printed on Georgia-Pacific Financial Opaque 27 lb. book.
28
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GEORGIA-PACIFIC CORPORATION
Proxy Solicited by the Board of Directors
for Annual Meeting May 4, 1999
The undersigned hereby appoints A.D. Correll, James F. Kelley and Kenneth F.
Khoury, jointly and severally, proxies with full power of substitution, to vote
all shares of Georgia-Pacific Group common stock of GEORGIA-PACIFIC CORPORATION
owned of record by the undersigned, and which the undersigned is entitled to
vote on all matters which may come before the 1999 Annual Meeting of Sharehold-
ers to be held at the Radisson Riverfront Hotel, 2 Tenth Street, Augusta, Geor-
gia, on May 4, 1999 at 11:00 a.m., local time, and any adjournments thereof,
unless otherwise specified herein.
At the present time, the Board of Directors knows of no business, other than
the matters set forth on the reverse side of this card, to be presented to a
vote of the shareholders at the Annual Meeting. However, the proxies hereby are
authorized to vote in their discretion on (i) the election of any person as a
director if a director nominee named in Proposal 1 is unable to serve or for
good cause will not serve, and (ii) on matters incident to the conduct of the
Annual Meeting.
Election of Directors:
Nominees in Class III: James S. Balloun, Robert A. Carswell, A.D. Correll
P R O X Y
Change of Address
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(If you have written in the above space, please mark the corresponding box on
the reverse side of this card.)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
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FOLD AND DETACH HERE
[LOGO OF ADMISSION TICKET
GEORGIA-PACIFIC
APPEARS HERE] ANNUAL MEETING OF SHAREHOLDERS
If you plan to attend the 1999 Annual Meeting of Shareholders, please mark the
appropriate box on the reverse of the attached Proxy Card. The meeting will be
held on Tuesday, May 4, 1999 at the Radisson Riverfront Hotel, 2 Tenth Street,
Augusta, Georgia. The meeting will begin promptly at 11:00 a.m. local time.
TO AVOID DELAY AT THE ENTRANCE, PLEASE PRESENT THIS TICKET
AGENDA
ELECTION OF THREE DIRECTORS
VOTE ON SHAREHOLDER PROPOSAL (PHASE-OUT OF CHLORINE-BASED CHEMICALS)
VOTE ON SHAREHOLDER PROPOSAL (TERMINATION OF SHAREHOLDER
RIGHTS PLAN OR SHAREHOLDER ACTION THEREON)
TRANSACTION OF OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING, WHETHER OR
NOT YOU ATTEND THE MEETING IN PERSON. TO MAKE SURE YOUR SHARES ARE REPRESENTED,
WE URGE YOU TO COMPLETE AND MAIL THE PROXY CARD ABOVE.
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7654
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[X] Please mark your votes as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF
DIRECTOR NOMINEES AND AGAINST EACH SHAREHOLDER PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1 AND A VOTE AGAINST ITEMS 2
AND 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Director Nominees [ ] [ ]
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
Shareholder Proposals: FOR AGAINST ABSTAIN
2. Phase-out of chlorine- [ ] [ ] [ ]
based chemicals
3. Termination of FOR AGAINST ABSTAIN
Shareholder Rights [ ] [ ] [ ]
Plan or shareholder
action thereon.
I plan to attend the Annual Meeting [ ]
Change of Address on Reverse Side [ ]
SIGNATURE(S) ________________________________________ DATE ____________________
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
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FOLD AND DETACH HERE
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GEORGIA-PACIFIC CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING MAY 4, 1999
The undersigned hereby appoints A.D. Correll, James F. Kelley and Kenneth F.
Khoury, jointly and severally, proxies with full power of substitution, to vote
all shares of Timber Group common stock of GEORGIA-PACIFIC CORPORATION owned of
record by the undersigned, and which the undersigned is entitled to vote on all
matters which may come before the 1999 Annual Meeting of Shareholders to be
held at the Radisson Riverfront Hotel, 2 Tenth Street, Augusta, Georgia, on May
4, 1999 at 11:00 a.m., local time, and any adjournments thereof, unless other-
wise specified herein.
At the present time, the Board of Directors knows of no business, other than
the matters set forth on the reverse side of this card, to be presented to a
vote of the shareholders at the Annual Meeting. However, the proxies hereby are
authorized to vote in their discretion on (i) the election of any person as a
director if a director nominee named in Proposal 1 is unable to serve or for
good cause will not serve, and (ii) on matters incident to the conduct of the
Annual Meeting.
Election of Directors:
Nominees in Class III: James S. Balloun, Robert A. Carswell, A.D. Correll
P R O X Y
Change of Address
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- --------------------------------------------------------------------------------
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(If you have written in the above space, please mark the corresponding box on
the reverse side of this card.)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT
VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
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FOLD AND DETACH HERE
ADMISSION TICKET
ANNUAL MEETING OF SHAREHOLDERS
If you plan to attend the 1999 Annual Meeting of Shareholders, please mark the
appropriate box on the reverse of the attached Proxy Card. The meeting will be
held on Tuesday, May 4, 1999 at the Radisson Riverfront Hotel, 2 Tenth Street,
Augusta, Georgia. The meeting will begin promptly at 11:00 a.m. local time.
TO AVOID DELAY AT THE ENTRANCE, PLEASE PRESENT THIS TICKET
AGENDA
ELECTION OF THREE DIRECTORS
VOTE ON SHAREHOLDER PROPOSAL (PHASE-OUT OF CHLORINE-BASED CHEMICALS)
VOTE ON SHAREHOLDER PROPOSAL (TERMINATION OF SHAREHOLDER
RIGHTS PLAN OR SHAREHOLDER ACTION THEREON)
TRANSACTION OF OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING, WHETHER OR
NOT YOU ATTEND THE MEETING IN PERSON. TO MAKE SURE YOUR SHARES ARE REPRESENTED,
WE URGE YOU TO COMPLETE AND MAIL THE PROXY CARD ABOVE.
- --------------------------------------------------------------------------------
2407
----
[X] Please mark your votes as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF
DIRECTOR NOMINEES AND AGAINST EACH SHAREHOLDER PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1 AND A VOTE AGAINST ITEMS 2
AND 3.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Director Nominees [ ] [ ]
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
Shareholder Proposals: FOR AGAINST ABSTAIN
2. Phase-out of chlorine- [ ] [ ] [ ]
based chemicals
3. Termination of FOR AGAINST ABSTAIN
Shareholder Rights [ ] [ ] [ ]
Plan or shareholder
action thereon.
I plan to attend the Annual Meeting [ ]
Change of Address on Reverse Side [ ]
SIGNATURE(S) ________________________________________ DATE ____________________
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE